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Stiglitz Says True U.S.-China Trade Accord `Almost Impossible'

(Bloomberg) -- A meaningful trade agreement between the U.S. and China is unlikely as long as President Donald Trump fails to recognize China’s right to develop its economy, according to Joseph Stiglitz, the Nobel Prize-winning Columbia University economist.

While a face-saving deal could arise that allows Trump to claim a victory for his hawkish approach to shrinking America’s trade deficit, a lasting agreement at this moment appears “almost impossible,” Stiglitz said.

Here are edited excerpts of an interview in Stiglitz’s office in New York on Tuesday:

Q: How do you assess the U.S.-China trade tensions?

Stiglitz: What we are doing right now is a skirmish. China is responding in a very measured way, not trying to escalate. The view that you cannot appease a schoolyard bully is very strong. I don’t think China has any other course.

Q: Can China and the U.S. reach a lasting trade deal?

Stiglitz: There are fundamental problems that are going to make reaching a true agreement almost impossible. There may be a face-saving agreement, but it will not solve the trade tensions. The U.S. refuses to recognize that China is a developing country. Different countries are at different stages of development. It is fundamental to the establishment of the WTO. I was there at the creation and very aware. You would never have had developing countries sign onto the WTO if you didn’t recognize their right to development. It is a fundamental right and they are not going to give up that right. We see China as a big country and refuse to recognize their right to development.

Q: What about the U.S. concerns over the “Made in China 2025” strategy?

Stiglitz: Of course they have a strategy to grow. What responsible developing country doesn’t have a strategy? Every developing economist says the important part of development is that the state plays a role bringing it up. It would be derelict if the government didn’t push this.

Q: Is China playing by the rules in how it deals with foreign investment?

Stiglitz: Trump doesn’t seem to recognize that the WTO is a trade agreement and not an investment agreement. When you are a developing country, investment comes in and you say, “I want the investment that comes in to be part of my development strategy.” Most successful countries have done this. It is not unfair. It is what you would think a responsible developing economy would to do. So we don’t have an investment agreement to say that China is not playing by the rules.

Q: Is the criticism of China misplaced?

Stiglitz: There just isn’t an investment agreement. China’s view of the forced taking of IP is: “We told the firms we want joint ventures and part of joint ventures is helping us develop and part of that is transferring IP and technology. Those are the terms that we made clear. No one had to come in. You came in. It was not a violation of WTO rules for us. Maybe you should have tried to negotiate that at the WTO, but you failed.”

Q: Is there a risk of a prolonged trade dispute?

Stiglitz: The notion of what it means by having free trade between different economic systems is being brought to a head. We have learned how to live with Europe, a slightly different system. We need to respect different norms and views of regulations. Trying to say “my view of the world is right” is not going to solve the problem.

Q: Will Trump eventually enter the TPP-11 with the other members?

Stiglitz: It was sort of like a group of kids got together in the school yard and he was excluded and said “maybe I need to be part of this.” Somebody probably explained to him that, by the way, TPP was designed to be anti Chinese and we need more tools against China. For us to get back into TPP is going to be problematic.

Q: What’s your outlook for global growth?

Stiglitz: The overall picture is that if it were not for the extreme fiscal stimulus of the U.S., we would be at a weak recovery stage. The crisis is behind us, but we are not going guns. It is a short-run stimulus and it doesn’t mean the global economy is on sound ground.